Online ‘fads’ may not seem that revelant to your firm now. But web technology has huge ability to save costs and keep you competitive
When I think about the future threats lying in wait for Towergate, it’s not at any existing competitor that I direct my sights, but at a hypothetical pair of 13-year-olds sitting in front of a computer in their dad’s garage. In less than a decade, I see them running their own multinational business, having embraced and created new social networking sites on a global scale.
Such is the power of online technology to shape new business models that I believe it will increasingly dominate all retail operations for the foreseeable future.
Which brings me to a puzzling question: why hasn’t commercial lines insurance moved on faster in exploiting the power of online connectivity? Across the industry, everyone is acutely aware of the need to reduce cost for the benefit of the customer. And here we have the technology to rip the heart out of cost for commercial insurance in the same way that it did for personal lines. Full electronic data interchange (EDI) has revolutionised the personal lines world, so why not commercial lines?
I don’t need to rehash all the advantages of full EDI delivery: it simply cuts out a massive amount of duplication, reducing the process to one input of data that transacts the deal, delivers for the customer and feeds your back office and the insurer’s. There is extra cost in loading the data in year one but, after that investment, the savings are staggering. So why aren’t things moving faster in SME commercial insurance?
It’s clearly not the technology that’s holding us back. So it must be behaviour. Okay, I accept that commercial lines business is more complex, with more information needed to rate the risk, which is where brokers’ expertise comes into play.
Insurers have in the past been part of the problem by becoming overly besotted with their own question sets to differentiate their products. But even the most complex SME product shouldn’t have a set of 48+ questions, and most standard commercial products can be auto-rated.
As I’ve said, traditionally brokers score by interpreting the requirements of clients, particularly in areas where cover is more complex. And, as long as there is the call for expertise, the broker has an important role to play. But that doesn’t mean you shouldn’t operate on common platforms designed to benefit your loyal customers on cost and allow you to keep up to speed with the aggregators.
I’ve argued many times that price is important but, for commercial lines brokers, it must never become the only criterion because, in an online marketplace, it creates wild promiscuity. The big churn in personal lines clients has meant that, in some areas, customer loyalty has dropped to less than 15 months on average, which contrasts starkly to the four to five years average lifetime value of a policyholder that brokers used to expect. That picture will swiftly be replicated in the commercial market unless brokers act now.
Two years ago, we made a major investment in Open GI, which was developing PowerPlace. I saw it as our life-changing opportunity to be ahead of the curve in the revolutionary changes affecting the commercial sector.
When PowerPlace talks to its broker partners, the team finds no resistance from the younger members of staff and the graduate recruits. They of the Twitter and YouTube generation see online platforms as a no-brainer.
The tipping point for commercial brokers seems to me to be getting very close. The customer – the SME owner who already buys, say, motor and household insurance online – is far more computer savvy today. “If you bought your motor online, why not your commercial liability?” That’s the question the aggregators are asking. And if brokers don’t reduce their costs, the meerkats will eat their breakfast before they’ve even got up.
To my mind, there is an inevitability about being more competitive on price and service delivery, and it’s very dangerous to ignore it. The message is simple: wake up or be out of the game for the SME segment. IT
Peter Cullum is executive chairman of Towergate Partnership.